The Debt Snowball Method Explained: A Quick-Start Guide

Nothing can be as motivating when it comes to tackling your debt as building momentum. You can feel it when momentum is on your side. You feel energized. You feel as though you can’t fail.

One popular way to build momentum while paying off your debt is using the debt snowball method. With this method, you start with small wins and use your momentum to start landing big wins on your journey to get out of debt once and for all.

Here’s how you do it.

The Debt Snowball Method Explained

Step 1: Organize Your Debt

For some people, this is the scariest part of the process – figuring out how much you owe. But don’t beat yourself up if you find yourself carrying a large amount of debt. What’s done is done. At this point, past behaviors don’t matter. The only thing that matters now is what you do from here on out.

The first thing you want to do is gather up all your statements. If it helps you to visualize them better, you can write the totals you owe down on a piece of paper or in excel.

But don’t stop there. To make sure you’re paying off any and all debts, you want to get a copy of your credit report.

Many people have debts they didn’t realize are still out there on their credit report. Then, there’s the fact that others have errors on their credit reports. So, if you really want to become debt free, don’t skip this step.

A quick and no-cost way to get your score is to sign up for Credit Sesame. It just takes a minute to sign up, but you’ll be getting access to valuable information and tips.

With Credit Sesame, you’ll get a free credit score, the ability to view your credit history, a comprehensive list of how much money you owe, and which companies you owe. It tells you what your monthly payments are, your interest rates, and if any of your debts are in collection.

In short, it will give you a complete picture of your debt and save you A LOT of time.

Remember, before you start digging yourself out with the debt snowball method, you need to have all the necessary information at hand.

Step 2: Commit to Making the Minimum Payment on Every Debt

Once you have all your debts in front of you, note what the minimum payment is on each one of them. You’ll be making just the minimum payment on each one, except for one of your bills.

To save yourself some time each month, you can take this stack of debts and automate each minimum payment. Then you won’t have to waste your time each month manually entering your minimum payments. You can just set them and forget them.

Step 3: Throw Everything at Your Lowest Debt

Every month until your debt with the lowest dollar amount is paid off, you should be putting every spare penny toward that debt. Any wiggle room in your budget should be devoted to this cause.

To pay it off as fast as possible, pay yourself first. Instead of waiting until the end of the month to designate what you can to this debt payment, make it the first bill you pay.

Put down enough that you’re eating into the principal on what you owe – not just paying on the interest.

Step 4: Keep Hammering That Single Debt

Once you’ve started making progress on that debt, you need to keep up that laser focus. Keep putting as much as you can toward that debt.

Any unexpected money you receive should go right to this cause. If you pick up extra hours at work or if you get a nice tax refund back, it should go right to this debt before you’ve even had a chance to spend it.

While you’re continuing to chip away at this single debt, you should keep making the minimum payments on your other bills. Keep at this until you pay off that smallest debt.

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Step 5: Move on to the Next Lowest Debt

Thanks to all your hard work, you’ve paid off your first debt. Congratulations! That excitement and sense of encouragement you’re feeling? That’s momentum! Now keep using the debt snowball method to tackle your next challenge.

Move on to the next lowest debt, adding in the payment you were making on the last debt. For instance, if you were paying $100 on a credit card debt that you just retired, that $100 will go toward that new bill. That’s in addition to the minimum payment you were already making on it while you were concentrating on that first debt.

Step 6: Rinse and Repeat

Keep using the debt snowball method to knock out all your debts, one by one. As you retire each debt, keep adding what you were paying towards the next lowest debt.

Before long, you’ll find yourself on your last one! Keep plugging away at it until your debts are totally gone.

Start Looking for Small Wins

You’ll reach your debt-free status much faster if you look for small wins to speed up this process. Small wins will help you free up more money to cut that debt quicker.

About The Author

R.J. Weiss is the founder and editor of The Ways To Wealth, a Certified Financial Planner™, husband and father of three. He's spent the last 10+ years writing about personal finance and has been featured in Forbes, Bloomberg, MSN Money, and other publications.

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